The Uber Effect

Uber has been around for 5 years, and much like a hurricane, wherever it passed through it left a trail of destruction in the form of outraged taxi drivers and confused policymakers. No city yet seemed to have found a balanced way to deal with the issue: whatever is done, some people think it’s too much, others that it’s too little. When Uber first became a “thing”, I was actually living in the United States, and sure enough, when taking a cab or Uber, we’d occasionally hear talk about how the city was trying to ban the app. As far as I could tell, nothing came from it, and there was very little commotion compared to Uber’s entry in Latin America. That is to be expected however: is Uber an American company, and the Unites States are a beacon of free-market in the world. As such, it was only natural that overall Uber would be allowed to operate and compete with existing taxi companies (note that this was not true everywhere and some cities actually managed to drive Uber out). When I went back to Brazil after graduating, I stumbled into an entirely different situation. In August 2015, Uber had gained significant momentum in major Brazilian cities such as São Paulo and Rio de Janeiro, but things were going less than smoothly for the company. Taxi protests had taken over the cities, and outrage had escalated to violence, to the point that many were afraid of being assaulted while using or driving an Uber. At that point, Uber was already technical illegal both in São Paulo and Rio de Janeiro, but the service continued to operate, mostly because it could afford to pay the fines if necessary. It was amidst this situation that my colleagues and I started our research project to understand how Rio and São Paulo were adapting their regulatory framework to the entrance of Uber and similar services. What we learned is striking, and also perhaps important to understand where Uber goes from here.

First, we learned that both cities are doing this in a manner of “trial and error”: they pass some regulation, and it either gets rejected, ignored or judged unconstitutional, so they move on to the next. In the case of Rio de Janeiro, they have attempted to ban the services twice, and on both occasions the judiciary overruled it. At the moment, they are still trying to figure out what the next attempt will be; hopefully, they will move on from pointlessly trying to ban the service to trying to regulate it somehow. São Paulo, however, was an entirely different world. While some parties in the city want to ban Uber (such as taxis and part of the legislative), there are still many fighting to find a sustainable solution, in particular the mayor Fernando Haddad. When Uber was first voted to be banned in the city, the mayor signed the ban into law, but only with the added provision that a group study would be created to find a better solution. In the meantime, despite the ban, Uber continued to operate, risking the payment of high fines. To combat this, a few months later a better solution was found. It involved the creation of a new taxi category, the black cabs, that operate exclusively through apps. Five thousand paid licenses were to be issued and Uber drivers could apply for them in a lottery system. Uber rejected it, arguing it was not a taxi service, and continued to operate on “business as usual”. Finally, the mayor created a new legislation proposal, which was put for public consultation for one month. This idea was received positively by Uber and much of the population, and in June 2016 a decree was issued that turned it into law. The idea is simple yet ingenious: Uber drivers will pay an extra fee per kilometer driven. They will be billed for each trip and have two days to pay the dues. The regulation gives the government the right to adjust prices according to needs to change demands. The prices are cheaper under certain circumstances: if these kilometers are driven at night, if the passenger is picked up outside the city centre, if the car is adapted for passengers with disabilities and perhaps most importantly, if the ride is shared, among others. This means that the government incentivizes drivers to complement the public transit system rather than compete with it. This is because the peripheries of the city are not as well served by public transport as the centre, and at night public options are limited. Additionally, by incentivizing carpooling (all the more convenient now that UberPOOL has arrived in São Paulo) the mayor hopes to reduce ridership in the city, which has some of the worst traffic congestions in the world; one study estimates drivers lose a month every year simply waiting in traffic. While this solution has been praised internationally, this continues to be a divisive situation, and many parties continue to protest it. However it seems to be one step closer to the end of this trial and error process, by taking a more progressive attitude towards a service that seems almost impossible to extinguish. And this new solution has an added bonus: Uber must provided live travel data to the government, such as trip locations, length, route, etc. This will help city planners better understand how roads are being used and better manage both the public and private transport sectors, further improving efficiency in the city. As a next step, the mayor envisions the integration of the city’s smart card “Bilhete Único” to Uber and taxi services, helping it further connect with the public network.

A second lesson we learned is just how powerful Uber is: in both cities, Uber constantly defied regulation, stubbornly standing their ground. This is important because by doing this, they force the cities to keep working until they find a solution that suits them. Because Uber is a multinational company worth over USD 50 billion, they can afford to pay the fines that their decisions incur. Why is this important? Because if this is the case around the world, that means Uber holds all the cards. Taxi companies are small and scattered and cannot afford the same attitude. In the end, whatever solution is found, it will most likely be favorable to Uber rather than the taxis, and the governments are, in a way, held hostage by Uber’s business strategy. This has been observed in the United States as well, with one author calling it a silent coup. The question remains of whether there really is something to be done about this, as Uber conveniently ignores bans. Ultimately this might actually work in favor of the population, by forcing cities to step up their transport game and allowing for free competition. But this is uncertain, as ultimately Uber is still very much a private company with its own interests.

Where does it go from here? It is likely that in a few years, taxis and Ubers won’t be so distinguishable, and so will be regulated equally and able to compete on fair grounds. I say this for two reasons. First, as technology catches on, taxis are more likely to start adopting the same technological strategy as Uber, as some already are, and relinquishing older practices. It may be the case that in the future taxis that pick up street hailing passengers become the exception. Second, Uber is starting to find internal troubles, with many protesting against wages and internal competition. Of course, with drivers not being actually employed by Uber, this was bound to happen. In that case, we will probably see Uber being more regulated, including through labor laws, which will then draw them closer to cabs. Whatever happens, there is no reason to doubt Uber’s business model hails the future of private transportation; however, there is little reason to believe that it won’t be forced to change. Once the hype goes down, people will start to contemplate some of Uber’s intrinsic flaws, forcing a new wave of regulatory change. Perhaps with more public outcry, Uber will not have so much power to determine its own regulation in the future.

This piece is the original writing of the author(s). The view points in the post is the author’s personal opinions and do not reflect IGLUS/EPFL’s viewpoints. The author(s) is the sole responsible person regarding the accuracy of the information presented in the post and will be liable for any potential copyright infringements.

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Great article Catarina. Uber has done a lot in the past years. It has been on war with cabbies but a great way of saving $$$ for the commuters and the majority of the society. Not being against the government, taxes and such, but they should make a move create innovations like this without causing too many problems on other people. I also understand the side of the taxi drivers. Their situation is indeed difficult because their source of living is at stake.